CAUA040/ CAUE080 TEST FOUR φτφχ

University of Limpopo
School of Accountancy
Private Bag X1106, Sovenga, 0727, South Africa
Tel: (015) 268 2618, Fax: (015) 268 3526, Email: kgothatso.kekana@ul.ac.za @ul.ac.za

FACULTY OF MANAGEMENT & LAW

SCHOOL OF ACCOUNTANCY
DEGREE AND DIPLOMA EXAMINATIONS

MODULE: CAUA040/CAUD080/CAUE080 TEST 4 : 2023

TIME: 3 HOURS MARKS : 100

INTERNAL EXAMINER : MS K KEKANA CA (SA)

INTERNAL MODERATORS : MS K MYBURGH CA (SA)
MS E GROBBELAAR CA (SA)

THIS PAPER CONSISTS OF 10 PAGES INCLUDING COVER PAGE

QUESTION 1 90 MARKS
QUESTION 2 10 MARKS
BONUS QUESTION 3 MARKS
INSTRUCTIONS:
1. Answer all the questions
2. Write neatly and legible
3. Calculate the time that you should spend on each question by multiplying the
number of marks for each question by 1.8 to determine the time, in minutes,
available for each question. Adhere to these time constraints in order to finish the
paper in the given time.
4. No tippex, erasable pen or pencil may be used on your answer sheets. Pages on your
answer sheets that contain pencil, erasable pen or tippex will be marked as such and
will not be eligible for a remark
5. All the examination regulations of the University of Limpopo will apply during this
assessment.
6. The neatness, disclosure and presentation of your answers will be considered when
marking your paper.
7. Read questions carefully, if you need to provide explanations you should always use
full sentences, refrain from simply naming facts.
8. Draw a line through unused spaces and pages.

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 CAUA040/ CAUE080 TEST FOUR φτφχ

QUESTION 1 [90 MARKS]

You are an audit senior at Lindokuhle Auditors Inc. (hereafter Lindo), a well-known large audit
firm, with offices countrywide. You have been the manager on the audit of Cobra-bricks (Pty)
Ltd (hereafter referred to as “Cobra-bricks”) for the last two (2) years. The year-end of Cobra-
bricks is 30 June 2023.
Cobra-bricks was established in Durban in 1960. From small beginnings, Cobra-bricks has
evolved into the major South African manufacturer, distributor and marketer of clay bricks,
clay pavers and a range of building materials. With factories around South Africa, Cobra-
bricks is geared to distribute in excess of five million products each day and has a footprint
in every major city throughout South Africa. Cobra- bricks has four factories where the bricks
are manufactured and distributed throughout the country through Cobra-bricks depots
(branches). The strength and durability of Cobra-brick’s wide and versatile range of clay face
bricks, is equally matched by its aesthetic qualities that are compelling and captivating. The
Cobra-bricks clay face brick range offers a wide variety of colours, shades, shapes, and
textures.
The process of manufacturing bricks is carried out in several stages. These are listed below.
Each stage has its own specific importance.

Stage 1: Selection of the suitable type of brick earth.

Stage 2: Preparation and tempering of mud.
Stage 3: Shaping or moulding of brick units.
Stage 4: Drying of moulded bricks.
Stage 5: Cooling and burning of bricks.

The production of bricks is mainly machine intensive which enables cost saving through mass
production.
Cobra-bricks’ accounting system is fully computerised with all application software developed
in-house and maintained by a qualified Information Technology (IT) Department, situated at
the head office in Durban. The IT department can remotely access the point-of-sale systems,
which are connected by a Wide-Area Network, at each depot if and when problems occur.
Working papers
The following working papers have been provided to you:
Working paper Description
/page reference
HRM100 Understanding of Human Resources and payroll
Page 5 Risk report
Page 6 Creditor’s reconciliation
Page 6 Carbon tax evasion
EM172 Director’s remuneration extract
PP111 Property, plant, and equipment testing Extract

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CAUA040/ CAUE080 TEST FOUR φτφχ
Client Name Cobra-bricks (Pty) Year- 30/06/2023
Ltd End HRM100
Prepared by Manny Dalgado Date 06/07/2023
Reviewed by Claire Dunphy Date 10/07/2023 (1 of 2)
Subject Understanding of Human Resources and payroll
Cobra-bricks has four departments, namely:

x Mixing and shaping

x Heating and cooling
x Packaging
x Administration and finance

Each factory has three production departments (mixing and shaping, heating and cooling
and packaging). Each department is managed by its own foreman, who reports to the
respective production manager. Each department also has an admin assistant.

Appointments
Production managers are responsible for the appointment of employees in their own
separate departments. Admnistration and finance staff are appointed by head office. On a
monthly basis the foreman and the production manager have a brainstorming meeting
where production reports and challenges are discussed . The foreman will also indicate if
there is any staff shortage and the production manager will then initiate the process of
appointment by emailing the HR department the vacancy details such as the position,
contract term, experience or qualification etc.
An extraction of the steps followed when appointing a new employee is as follow:

• The HR department advertises new positions in newspapers, on the company

website and social media platforms.
• Prospective employees submit their Carriculum Vitae ( CV) for the position they are
interested in. The HR manager reviews all curriculum vitaes and contact the
prospective employees who meet the requirements within two weeks of submission of
the curriculum vitae, for an interview.
• The interview is conducted between the HR manager and the prospective
employee, and the individual is informed within five working days whether or not they
have been successful in their application.
• All successful candidates are required to submit the following information to the HR
manager before the commencement of their contract for record keeping :
o a copy of the employee contract, signed by both employee and HR
manager.
o a certified copy of their identity document.
x Employee files are stored on the computerised employee masterfile to reduce
paperwork. All amendments to the masterfile are processed electronically. All
necessary masterfile amendment procedures are followed to amend any employee
details or add/remove any employee.

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CAUA040/ CAUE080 TEST FOUR φτφχ

Client Name Cobra-bricks (Pty) Year- 30/06/2023

Ltd End HRM100
Prepared by Jay Pritchett Date 25/07/2023
Reviewed by Claire Dunphy Date 30/07/2023 (2 of 2)
Subject Understanding of Human Resources and payroll

Time-keeping
All production employees are paid a wage weekly, while administration and finance
employees earn a fixed monthly salary. Production employees enter the premises through
a specific entrance gate and also leaves the premises through the same gate. To enter or
leave the premises, production employee accesses this gate by scanning their thumb finger
on a biometric scanning machine. The scanning machine record their time of entry and exit
and automatically calculate the hours worked. Production employees work 8-hour shifts
from Monday to Saturday from 07H00 to 16H00 with a 1 hour lunch break. During peak
times, for example when there are big construction contracts with high demand, employees
can work for more than 8 hours. When employees clock out after 16H00, the system
automatically allocate the time after 16H00 as overtime. Throughout the shift the foreman
walks through the factory and the factory yard checking if all employees are present and
productive. On a weekly basis, the production manager scan through the hours calculated
on the system and immediately send the schedule to payroll for processing.

Payroll preparation and payments

The payroll clerk prepare a payroll run for the week based on the report received from
production manager and extract the wage rate directly from the HR Masterfile. The final
payroll is comprehensive and includes for each employee, the full details of how the ‘Net
pay’ is made up. Access to the Masterfile is restricted to employees in the HR department
through the use of unique usernames and passwords. Once the payroll run is complete,
the payroll clerk log into the banking system and import the report for payment purposes.
The payroll manager and the branch manager are responsible for approving and releasing
the payments.

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Risk Report

Management of Cobra-bricks has embarked on a project to increase the sales of the

company by exploring trading over the internet. They have approached the risk committee
to investigate this area. Below are the risks of trading over the internet identified by the
committee as part of their investigations.
Risk no: Risk Identified:
1 By connecting to the internet, the company create a channel or link to the
outside world that could facilitate unauthorised access to the company’s
computer system. This could lead to service disruption, virus contamination,
loss/ corruption of data etc.
2. Orders may be accepted, and the goods dispatched but payment may not be
received from the customer.
3. Unauthorised disclosure of customers information (by hacking of the system)
4. Information keyed in by the customer may be inaccurate, incomplete,
resulting in orders that cannot be filled, leading to customers dissatisfaction
and lost sales.

Creditor’s reconciliations
Ms Maphonya, the creditors clerk, presented you with a file of creditors, which includes
creditors reconciliations, creditor’s statements, invoices, supplier delivery notes, goods
received notes and order forms.
You selected one of the creditors, Victoria Sand (Pty) Ltd, for testing, Victoria Sand (Pty) Ltd
is one of Cobra brick’s sand suppliers for the production of bricks. The creditor’s reconciliation
on 30 June 2023 is presented below:

Creditor’s reconciliation: Victoria Sand Pty Ltd Notes R

Balance per creditors statement on 30 June 2023 105 650

Less: Invoice 6710, dated 29 June 2023 not posted in the ledger 1 (35 800)

Less: Payment eft1000098017 made on 28 June 2023, not yet (40 100)
reflected on statement

Less: Settlement discount not reflected on statement, 3% on 2 (3 600)

invoice 5967

Balance per the creditor’s ledger 26 150

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 CAUA040/ CAUE080 TEST FOUR φτφχ

Note 1:
Invoice 6710 relate to sand delivered at one of the Cobra-bricks factories. Ms Maphonya
indicated that Victoria’s sand failed to deliver the quantity ordered, hence the invoice was not
recorded in the ledger.

Note 2:
This discount was in respect of the settlement of invoice 5967 for R120 000. Victoria Sand
offers a 3% settlement discount in respect of all invoices paid within 30 days of the date of
the delivery of goods.

Carbon tax evasion

While testing the payroll account in the general ledger, you selected an employee who had a
suspicious description and did not have an employee number. You asked the payroll
manager about this employee, and she instructed you to talk to the CEO about the issue.
The CEO told you not to worry about that employee and instructed you to disregard the
employee for the purposes of your testing. Upon further investigation you discovered that this
person is not an employee of Cobra-bricks, but a law official who deals with carbon taxes.
Cobra-bricks have been paying this law official a monthly salary of R20 000 and in return the
law official will assist the company in reducing their carbon taxes. Due to the above
arrangement, Cobra-bricks have been evading the carbon tax for the past 2 years, the value
of the tax evaded is more than R6 million.

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CAUA040/ CAUE080 TEST FOUR φτφχ
Client Name Cobra-bricks (Pty) Year- 30/06/2023
Ltd End EM172
Prepared by Ramogale M Date 19/07/2023
Reviewed by Sethole S Date 21/07/2023
Subject Director’s remuneration (Extract)

The company has seven board members. Per the company’s remuneration policy,
executive directors receive monthly salaries and the executive directors who qualify for a
bonus receive their bonusses with their December salary. All executive directors belong to
a group medical aid scheme and retirement fund, to which Cobra- bricks contributes. Non-
executive directors are paid a fee for their services (for example attending a meeting).
Details regarding the remuneration rate and bonus criteria are stipulated in the
remuneration policy. The director’s remuneration disclosure for the year ended 30 June
2023 was as follows:

Salary Retirement Bonus Total

and medical
contributions
Executive directors: R R R R
Ms. Dagada HM 475 000 17 000 35 000 527 000
Mr. Mlambo PS 386 900 13 000 0 399 900
Ms. Rakhadani AF 398 000 15 600 0 413 600
Mr. Lekgwara J 698 000 18 700 0 716 700

Total 1 957 900 48 700 35 000 2 057 200

Non-executive directors: R R R R
Ms. Choshi CS 37 000 0 0 37 000
Mr. Molapo J 20 000 0 0 20 000
Mr. Chikuruwo BT 19 000 0 0 19 000

Total 76 000 0 0 76 000

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CAUA040/ CAUE080 TEST FOUR φτφχ
Client Name Cobra-bricks Pty Year- 30/06/2023
Ltd End PP111
Prepared by Jay Pritchett Date 25/07/2023
Reviewed by Claire Dunphy Date 30/07/2023
Subject Machinery and equipment testing (Extract)

Objective:
To obtain audit evidence regarding the machinery and equipment balance as disclosed in
the financial statement of Cobra-bricks (Pty) Ltd.

Audit procedures

Existence:
x Procedure 1: Scrutinise minutes/contracts/lease agreements/invoices to identify
any material purchase transactions and follow through to entry in fixed asset register.
x Procedure 2: Select a sample of items acquired in this financial year from the fixed
asset register, and physically inspect the assets.

Valuation, Accuracy, and allocation:

x Procedure 3: Recalculate the profit on sale of the fixed assets and agree to the profit
recorded in the general ledger.
x Procedure 4: For a sample of purchase transactions compare amounts in the fixed
asset register to supplier’s invoice/purchase contract to confirm the amount.
x Procedure 5: Recalculate the closing carrying amount and agree to the closing
carrying amount on the statement of financial position.

*Please take note that there was no disposal of assets in the current year.
*Please take note that all relevant general procedures were correctly performed.

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CAUA040/ CAUE080 TEST FOUR φτφχ

YOU ARE REQUIRED TO:

With reference to the heading “Risk report” ONLY, write a memorandum to
a) 15
the management of Cobra-bricks (Pty) Ltd describing the computerised
controls that could be implemented to prevent, detect, or mitigate each risk
identified by the risk committee.

You are not required to re-write the risks in your answer, please use
below reference for the risk identified.
E.g., Risk no 1,2,3 etc

Marks will be awarded as follows:

Risk no 1 – (3 Marks)
Risk No 2 – (4 Marks)
Risk No 3 – (4 Marks)
Risk No 4 – (4 Marks)
1
Communication: Layout and structure
With reference to working paper HRM100, describe the controls you would 9
b) expect when a new employee is added to the employee Masterfile.

Exclude from your answer any password related controls and screen
aid/program checks.
With reference to working paper HRM100, describe the weaknesses and 15
c) the potential consequences of each weakness (i.e., risk arising from the
weakness) in the human resource cycle of Cobra-bricks Pty Ltd.

Your answer should be in a table format as follows:

Weakness Risk arising from the
weakness
… …

Communication: Clarity of expression 1

With reference to heading: Creditor’s reconciliation, describe the
d) 15
substantive audit procedures you would perform in relation to the creditor’
reconciliation of Victoria Sand (Pty) Ltd.

With reference to working paper EM172, formulate the substantive audit

e) 13
procedures you would perform regarding the director’s remuneration of
Cobra-bricks (Pty) Ltd.

Your answer should include substantive procedures regarding the

following:
x General procedures relating to director’s remuneration
x Director’s salary (gross and after deductions)
x All relevant deductions
x Bonus

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 CAUA040/ CAUE080 TEST FOUR φτφχ

You were instructed by the audit manager to review the audit work performed
f) 12
by a junior audit trainee, testing the machinery and equipment balance as at
30 June 2023.

Critically evaluate the audit working paper PP111.

Where necessary suggest the additional procedures for all assertions (not
just the assertions as per the working paper).

Please note: Exclude from your discussion any procedures to be 1

performed regarding impairment.

Communication: Logical argument

With reference to heading “Carbon tax evasion”, given that your firm have
g) 8
been the auditors of Cobra Bricks Pty Ltd for the past 2 years, discuss
whether your audit firm could be successfully sued for failing to detect the
fraud of R6 million tax evasion.

Limit your answer by referencing to the International Standards on

Auditing and Auditing Profession Act.

TOTAL MARKS 90

QUESTION 2 [10 MARKS]

You are the audit senior on the audit of Chem Trade Ltd, a chemical manufacturing company
that sells its products worldwide. Chem Trade sell its products for both cash and credit to the
public. Apart from the manufacturing plants and the warehouses, the company has 115 stores
(branches) located across the country.
Your junior trainee has missed the technical training provided by the audit firm on sampling.
He therefore requested your assistance in terms of method of selection for testing purposes.
Below is an extract of the email from the junior trainee:

Good day

I trust you are well.

As I have already indicated in our telephonic communication, I have missed the training on
sampling methods and selection due to other personal commitments. I am therefore
requesting for assistance in terms of the method of selection for the following specific
queries. Below is a detailed plan in terms of what I want to test and how I am going to test
the item, kindly advise on the appropriate selection method that I should use for the
respective query:

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CAUA040/ CAUE080 TEST FOUR φτφχ

Queries Test
Query 1 I would like to physically verify property, plant, and equipment for
existence. The total of all the assets is R1 521 000. The value of two
factory machines is R1 100 000. The other R421 000 comprise of 800
small assets.
Query 2 I would like to also perform test of controls on purchases transactions.
The entity had 8 million purchases transaction for the year.
Query 3 In this test I would like to inspect minutes of the monthly directors’
meetings to identify any important decisions taken of which the auditor
should be aware.
Query 4 To confirm the existence of debtors, I would like to send a debtors
confirmation. The debtors’ list is available. According to our audit firm
policy, I know we must select at least 60% of the value of the debtors.

Below is the list of debtors:

A. Debtor A R944
B. Debtor B R168
C. Debtor C R20
D. Debtor D R122
E. Debtor E R16
F. Debtor F R233 886
G. Debtor G R65 118

Total R300 274

Your assistance will be highly appreciated.

Kind regards
Junior trainee

YOU ARE REQUIRED TO:

A) For each of the query above, advice the junior trainee by explaining which one of the 10
three selection methods as per ISA530 will be appropriate for testing purposes.

TOTAL MARKS 10

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CAUA040/ CAUE080 TEST FOUR φτφχ

BONUS MARKS [3 MARKS]

YOU ARE REQUIRED TO ANSWER THE FOLLOWING INDEPENDENT QUESTIONS:

According to Eyewitness News (EWN), the City of Johannesburg engineers 2

have narrowed down the Bree Street gas explosion to three possible causes.
Describe only two of the possible causes.

Name the two South African medium size audit firms that merged on the 26th of July 1
2023.

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